California’s Fast Food Wage Hike Law Sparks Concern Among Employers

by Nick

California’s Assembly Bill No.1228 (AB 1228), which came into effect on April 1, 2024, has made fast food workers in the state the highest-paid in the nation. However, the lack of clarity surrounding the law’s coverage has left some employers grappling with uncertainty, as compliance with California’s Labor Code remains paramount.

How did we arrive at this point?

In 2022, California introduced the Fast Food Accountability and Standards Recovery Act (FAST Act) in an effort to reform the fast food industry. Among its provisions, the law aimed to establish a regulatory council within the Department of Industrial Relations with broad authority over the fast food sector, including the ability to raise minimum wages up to $22 per hour by 2023. However, the FAST Act faced opposition from the restaurant industry and chambers of commerce, leading to its suspension until the November 2024 election through California’s referendum process.


Against this backdrop, AB 1228 is viewed as a legislative compromise following the uncertain fate of the FAST Act. AB 1228, now enshrined in California Labor Code §§ 1474 et seq., raised the minimum wage for “fast food restaurant employees” from $16.00 to at least $20.00 per hour. It also established a Fast Food Council with narrower powers compared to the FAST Act, tasked with setting future minimum wage increases and adopting additional employment standards for fast food establishments. Furthermore, AB 1228 removed certain provisions holding franchisors liable for the labor law violations of their franchisees.


Who does the law cover?

National fast food chains (and their franchisees) subject to AB 1228 include those meeting specific criteria: having over 60 establishments nationwide, sharing a common brand, primarily offering food and beverages for immediate consumption, providing limited or no table service, and generally expecting patrons to order and pay before consumption.


However, exemptions apply to certain establishments, such as those operating bakeries selling bread as a standalone item, restaurants within grocery stores, and those located in airports, hotels, and similar venues.


Since the law’s enactment, businesses falling outside the exemptions have sought clarity on whether they must adhere to the $20.00 per hour minimum wage requirement. For instance, fast food outlets within retail stores not classified as grocery establishments may need to pay the increased wage rate according to guidance from the Department of Industrial Relations.

In anticipation of potential profitability challenges and legal disputes, many businesses are taking proactive measures, including implementing price adjustments, staff layoffs, and reduced operating hours. The full impact of AB 1228 remains to be seen.

Consequences of non-compliance

Failure to comply with AB 1228 may result in claims for lost wages, statutory penalties, and civil penalties under the California Labor Code Private Attorneys General Act of 2004 (PAGA), among others. Given the potential repercussions, fast food employers are advised to seek legal counsel to determine their obligations under the law.


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